Formula, calculation and example
SIFM — StockInsights Financial Moat
SIFM is StockInsights’ financial moat model. Version 0.5 combines operating strength and durability across five consecutive annual periods into a score from 0 to 100. It looks for financial evidence consistent with a durable business advantage; it does not establish whether a company has one.
SIFM formula
SIFM = √(Strength × Durability)Both pillars range from 0 to 100. The geometric mean rewards balance: strength cannot fully compensate for weak durability. Strength combines excess return on invested capital, reinvestment quality and cash conversion. Durability weights ROIC persistence at 45%, margin resilience at 30% and revenue resilience at 25%.
Key inputs
- Five aligned annual periods
- Yahoo Finance balance sheets, income statements and cash flows must cover five consecutive matching fiscal periods. Missing required values or insufficient history produce no score.
- Operating profit and capital
- NOPAT is operating EBIT × (1 − 21%). Operating invested capital (OIC) is total assets minus cash, short- and long-term investments, and non-interest-bearing current liabilities. ROIC is NOPAT / OIC. The model uses a fixed 8.5% hurdle rate.
- Reinvestment and cash conversion
- Reinvestment quality compares profit changes with prior capital additions over one- and two-year lags. Cash conversion compares total operating cash flow less stock-based compensation with total NOPAT over the window.
- Margins and revenue
- Gross profit, operating income and revenue measure downside in margins and the frequency and severity of revenue declines. All components use reported annual data rather than forecasts.
Illustrative SIFM calculation
- 1Suppose the component calculations produce a Strength score of 81 and a Durability score of 64.
- 2Multiply the two pillars: 81 × 64 = 5,184.
- 3Take the square root: √5,184 = 72.
The illustrative SIFM score is 72 / 100. This is neither a 72% probability of success nor evidence that the shares are undervalued. The pillar scores are assumed for this example, not derived from a real company’s statements.
When SIFM is useful
- Assessing multi-year operating quality alongside valuation models.
- Identifying companies whose returns, margins and revenue merit closer research.
- Comparing businesses with similar economics and accounting practices.
Limitations to consider
- Banks, insurers, asset managers and lending-style financial businesses are outside the model’s scope. Pure payment networks can remain eligible.
- Accounting patterns do not directly measure brand strength, switching costs, network effects or future competition.
- A small operating-capital base can inflate returns. Zero OIC in any year or non-positive OIC in more than one year prevents a score; a single negative year can remain scorable with a low-capital warning in the model diagnostics.
- Acquisitions, restructuring and accounting changes can impair comparability. These events are not all detected automatically.
- Yahoo coverage and revisions affect results. Optional fields can use documented fallbacks, including zero for unavailable stock-based compensation; required inputs are never fabricated.
- The fixed tax and hurdle rates are model assumptions, not company-specific estimates. A date-limited historical query is not a verified point-in-time backtest.
How to calculate SIFM
- 1Align and validate five annual periods, confirm industry eligibility, then calculate NOPAT, OIC and annual ROIC.
- 2Score median ROIC above the 8.5% hurdle, quality-adjusted returns on lagged reinvestment, and cash conversion. Cash conversion scores highest near a ratio of one; larger is not always better.
- 3Set the reinvestment weight between 10% and 35% according to reinvestment intensity. Split the remaining weight between excess ROIC and cash conversion in a 45:20 ratio to obtain Strength.
- 4Combine ROIC persistence, margin resilience and revenue resilience using weights of 45%, 30% and 25% to obtain Durability.
- 5Take the geometric mean of Strength and Durability. Review the statement period, availability and freshness alongside the score.
How to interpret the result
Higher scores indicate stronger combined historical results under SIFM v0.5. There are no validated buy/sell thresholds presented here. An unavailable score is not zero. Stock Insights shows the last usable result when an update fails and warns when a result is more than three days old; a recent calculation can still use older annual statements. Combine SIFM with valuation and qualitative business analysis.
SIFM v0.5 paper
For the detailed methodology, request the SIFM v0.5 paper through Stock Insights support.
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Frequently asked questions
Is SIFM a valuation model?
No. SIFM measures historical operating quality on a 0–100 scale. It does not estimate fair value, a target price or expected stock returns.
What does SIFM stand for?
StockInsights Financial Moat. SIFM is the website name for the Financial Moat model, version 0.5.
Does a high SIFM score prove a competitive moat?
No. It identifies financial patterns consistent with operating strength and durability. Qualitative research is needed to understand their cause and whether they will persist.
Why is a score unavailable?
A company may be outside the model’s scope, lack five complete annual periods or required fields, have invalid operating capital, or be affected by a provider error. Unavailable does not mean a score of zero.
Where can I read the paper?
The SIFM v0.5 paper is available on request through Stock Insights support. Use the paper request link below.
Learn the method in context
Go beyond the formula with worked explanations, assumptions and common mistakes in the Stock Insights Academy.
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